LNG World Shipping

Expanded Panama Canal opens a new LNG route

Last year’s opening of the expanded Panama Canal welcomed LNG to the waterway for the first time in 102 years. It also signalled a new era for the segment.

The increase in the canal's capacity provides LNG producers access to new markets, presents shippers with better options and introduces cleaner fuel alternatives to the maritime industry and the broader economy.

Since 1914, the Panama Canal all-water route has offered a safe, reliable and efficient service that shortens the distance between cargo and consumer. Building on this legacy, the expanded canal introduces new segments and cost efficiencies and time savings for shippers.

Today, LNG producers in the Americas, including new and existing plants in the US, Trinidad andTobago, and Peru, can ship natural gas to large, energy-consuming countries in Asia and Europe that were previously out of reach.

Shippers have seized that opportunity. Soon after opening in July, the canal began to welcome an average of five LNG transits a month. These figures were consistent with expectations, based on the shift in US policy to allow LNG exports, set against the fact that the only project to start to export so far is Sabine Pass, which launched its first two liquefaction trains last year. Projects in Trinidad and Peru were also expected to generate limited cargoes.

In October, LNG traffic picked up, a trend that continued through December, driven by an uptick in winter purchases of gas for heating in northern Asia, the shutdown at Australia’s Gorgon LNG export facility, rising oil prices, and arbitrage opportunities for US and Trinidadian spot LNG cargoes. The average number of monthly LNG transits through the canal increased from five to 14.

Outlook

So, can we expect this trend to continue? It’s too early to tell. It will be important to watch how the maritime LNG transport industry adapts to improving LNG charter rates, to new players moving cargo from Sabine Pass, and the challenges of the low oil and LNG price environment. Still, the practice of moving LNG through the canal holds promise.

For one, markets in Asia are expected to increase their reliance on energy imports as domestic oil production slows, especially in China. Analysts expect substantial demand for LNG this year in Europe, too.

Further, as world economies take steps to meet their commitments under the Paris climate agreement, the market for LNG as a clean fuel alternative will grow. LNG releases 25 per cent fewer pollutants than other fuels in thermal electricity generation and using it helps to reduce overall carbon emissions.

Greater access to LNG comes at a crucial time for the shipping industry as it also seeks ways to reduce its carbon footprint. The IMO sees LNG as an energy-efficient alternative to existing marine fuels, with their high sulphur counts. LNG as fuel will cut greenhouse gas emissions from international shipping and help shippers to meet new IMO regulations. SEA\LNG predicts that orders for LNG-fuelled ships excluding LNG carriers will more than double the fleet now operating worldwide.

Regardless of these trends, one thing remains clear: the Panama Canal will continue to innovate and to find new ways to provide value for shippers, delivering the same safe and reliable service customers have come to respect.

And, amid new projects to expand the canal’s logistics offerings, which include studies into LNG-import terminals and other infrastructure, we are witnessing a new era begin.